In a surprising turn of events, the UK’s largest retailers have experienced their first monthly decline in shop prices in two years. Eager to attract customers, stores offered significant discounts during the unseasonably wet weather in July. According to the British Retail Consortium (BRC), in collaboration with NielsenIQ, the annual shop price inflation rate dropped to its lowest level of the year, decreasing from 8.4% in June to 7.6% last month.
The biggest price cuts were seen in clothing and footwear, as retailers sought to entice shoppers to purchase summer outfits despite the heavy rain and floods that plagued the country. Additionally, food price inflation also slowed down in July, reaching its lowest rate for the year. Staples such as oils, fats, fish, and breakfast cereals became more affordable, providing some relief for cash-strapped consumers. However, the annual price growth for food products remained elevated at 13.4%, although it was a decrease compared to June’s figure of 14.6%.
While the decline in shop prices may offer optimism, the BRC has warned that retailers may face rising input prices in the upcoming months, particularly in the food sector, due to international events. Global food commodity prices have been on the rise, driven by recent developments such as Russia terminating the Black Sea grain deal and India banning non-basmati white rice exports. Helen Dickinson, the CEO of the BRC, stated that supply chain issues could contribute to higher input costs, with food prices expected to decrease at a slower rate than other goods. She urged the government to freeze business rates from next April to prevent additional pressure on prices amounting to £400 million.
The retail industry, especially food retailers, has faced scrutiny over the rising cost of living recently. Supermarket executives have denied increasing their profits by keeping food prices high. However, the rate of overall price rises seems to be slowing, as the UK’s annual inflation rate dropped more than anticipated in June to 7.9%, largely due to a significant decline in petrol costs. These figures have led to improved forecasts by financial analysts on the Bank of England’s potential interest rate hikes.
With the summer holidays and a more positive inflation outlook, discretionary consumer spending is expected to increase. However, Mike Watkins, the head of retailer and business insight at NielsenIQ, noted that shoppers are adopting new strategies, including shopping at different retailers, purchasing lower-priced items, delaying spending, or only buying items when there are promotions. This shift in behavior is likely to continue in the future.
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